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Top 7 Dividend Growth Stock Picks for 2022

These high-quality dividend growth stocks are my top picks for 2022. Each stock is trading below my risk-adjusted Buy Below price and meets all five of my stock selection criteria.

As a dividend growth investor, I look to invest in high-quality and safe dividend growth [DG] stocks trading at reasonable valuations. My watchlist is Dividend Radar, an automatically generated spreadsheet listing stocks with dividend increase streaks of five or more years. The latest edition (December 24, 2021) contains 731 DG stocks.

I usually consider five stock selection criteria before buying DG stocks for my DivGro portfolio: The criteria are Stock Quality, Stock Valuation, Growth Outlook, Income Outlook, and Dividend Safety. I’ll briefly describe these criteria and a few additional screens I used to pick my top 7 DG stocks for 2022.

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Stock Selection Criteria

Stock Quality

I use DVK Quality Snapshots to determine quality scores (out of 25) for DG stocks. I rate stocks based on their quality scores: Exceptional (25), Excellent (23-24), Fine (19-22), Decent (15-18), Poor (10-14), and Inferior (0-9) stocks. Stocks with quality scores of 15-25 are Investment Grade stocks.

For this article, I considered only Investment Grade DG stocks (Quality Scores ≥ 15).

Stock Valuation

I routinely estimate the fair value of DG stocks to identify candidates trading at favorable valuations. By a favorable valuation, I mean a risk-adjusted Buy Below price that allows a premium of up to 10% for Exceptional stocks and a premium of up to 5% for Excellent stocks but requires fair value or below for stocks rated Fine.

I use a survey approach to estimate fair value, collecting fair value estimates and price targets from several online sources, such as Morningstar and Finbox. I also estimate fair value using each stock’s five-year average dividend yield. With several estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my fair value estimate.

For this article, I considered only DG stocks trading at favorable valuations (Price ≤ Buy Below price).

Growth Outlook

The Chowder Number [C#] sums a stock's forward yield and its 5-year dividend growth rate. It is a growth-oriented metric measuring the likelihood that a DG stock will deliver annualized returns of 8% or more. I color-code the C# green for candidates likely to deliver annualized returns of 8% and yellow for those less likely to do so. Candidates unlikely to deliver annualized returns of 8% are colored red.

For this article, I considered only DG stocks likely to deliver annualized returns of 8% (C#’s colored green).

Income Outlook

The 5-year Yield on Cost [YOC] is an income-oriented metric indicating what your YOC would be after buying a stock and holding it for five years, assuming the current 5-year dividend growth rate is maintained. I color-code the 5-year YOC column as follows: red < 2.50% ≤ yellow < 4.00% ≤ green.

For this article, I considered only DG stocks likely to have high 5-year YOC’s after five years of ownership (5-year YOC ≥ 4.00%).

Dividend Safety

While Dividend Safety Scores is one of the quality indicators of DVK Quality Snapshots, I consider this metric separately. I only want to invest in the safest DG stocks!

For this article, I selected DG stocks with Very Safe and Safe dividends (Dividend Safety Score > 60).

Additional Screens

The Dividend Radar spreadsheet separates stocks into three categories: Champions with dividend increase streaks of 25+ years, Contenders with streaks of 10-24 years, and Challengers with streaks of 5-9 years.

For this article, I decided to exclude Challengers (Dividend streak ≥ 10 years).

Finally, I wanted to use an invaluable performance metric for DG stocks, the trailing total return [TTR]. The TTR of DG stock includes both dividend payments and stock price appreciation, annualized over the period in question.

For this article, I screened an inflation-beating TTR over five years (5-year TTR ≥ 7.0%).

My Top Picks for 2022

Here are my top 7 DG stock picks for 2022:

Screen Shot 2022-01-03 at 7.49.54 AM

I own the highlighted stocks in my DivGro portfolio.

Below, I provide a table with key metrics of interest to DG investors:

The Fwd Yield column is colored green if Fwd Yield ≥ 5-Avg Yield.

Key metrics of my Top 7 Dividend Growth Stock Picks for 2022 (includes data sourced from Dividend Radar).

Key metrics of my Top 7 Dividend Growth Stock Picks for 2022 (includes data sourced from Dividend Radar).

Next, let's look at each stock in turn. All data and charts are courtesy of Portfolio-Insight.com.

1. Texas Instruments (TXN)

TXN designs, manufactures, and sells semiconductors globally to electronics designers and manufacturers. The company operates in two segments, Analog and Embedded Processing. It markets and sells semiconductor products through a direct sales force and distributors, and its website. TXN was founded in 1930 and is headquartered in Dallas, Texas.

Screen Shot 2022-01-03 at 7.53.40 AM
TXN non-GAAP EPS and dividends paid (TTM), with stock price overlay

TXN non-GAAP EPS and dividends paid (TTM), with stock price overlay

2. Lockheed Martin (LMT)

Founded in 1909 and headquartered in Bethesda, Maryland, LMT is a global security and aerospace company engaged in researching, designing, developing, manufacturing, integrating, and sustaining advanced technology systems. LMT operates through four segments, Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space Systems.

Screen Shot 2022-01-03 at 7.55.18 AM
LMT non-GAAP EPS and dividends paid (TTM), with stock price overlay

LMT non-GAAP EPS and dividends paid (TTM), with stock price overlay

3. Amgen (AMGN)

Based in Thousand Oaks, California, AMGN is a biotechnology company. The company discovers, develops, manufactures, and delivers human therapeutics worldwide. It offers products for the treatment of severe illnesses in oncology/hematology, cardiovascular disease, inflammation, bone health, nephrology, and neuroscience. AMGN was founded in 1980.

Screen Shot 2022-01-03 at 7.56.51 AM
AMGN non-GAAP EPS and dividends paid (TTM), with stock price overlay

AMGN non-GAAP EPS and dividends paid (TTM), with stock price overlay

4. T. Rowe Price (TROW)

Founded in 1937, TROW is a financial services holding company that provides global investment management services to individual and institutional investors in the sponsored T. Rowe Price mutual funds and other investment portfolios and through variable annuity life insurance plans. TROW is based in Baltimore, Maryland.

Screen Shot 2022-01-03 at 7.58.45 AM
TROW non-GAAP EPS and dividends paid (TTM), with stock price overlay

TROW non-GAAP EPS and dividends paid (TTM), with stock price overlay

5. Snap-on (SNA)

SNA manufactures and markets tools, equipment, diagnostics, repair information, and systems solutions. It serves aviation and aerospace, agriculture, construction, government and military, mining, natural resources, power generation, technical education industries, and vehicle dealerships and repair centers. SNA was founded in 1920 and is headquartered in Kenosha, Wisconsin.

Screen Shot 2022-01-03 at 8.00.17 AM
SNA non-GAAP EPS and dividends paid (TTM), with stock price overlay

SNA non-GAAP EPS and dividends paid (TTM), with stock price overlay

6. Allstate (ALL)

Founded in 1931 and headquartered in Northbrook, Illinois, ALL is a holding company engaged in property-liability insurance and life insurance in the United States and Canada. The company sells insurance products covering automobiles, homes, and other properties under the Allstate, Esurance, and Encompass brand names. It also sells life insurance and voluntary accident and health insurance products.

Screen Shot 2022-01-03 at 8.01.57 AM
ALL non-GAAP EPS and dividends paid (TTM), with stock price overlay

ALL non-GAAP EPS and dividends paid (TTM), with stock price overlay

7. Best Buy (BBY)

BBY is a retailer of technology products, services, and solutions in North America. The company offers assistance to the consumers, small business owners, and educators, who visit its stores, engage with Geek Squad agents or use its Websites or mobile applications. BBY was founded in 1966 and is headquartered in Richfield, Minnesota.

Screen Shot 2022-01-03 at 8.03.52 AM
BBY non-GAAP EPS and dividends paid (TTM), with stock price overlay

BBY non-GAAP EPS and dividends paid (TTM), with stock price overlay

Concluding Remarks

Screen Shot 2022-01-03 at 8.05.18 AM

This article identified my top 7 dividend growth stock picks for 2022. I used my usual stock selection criteria and also screened based on dividend streak and trailing total return annualized over five years.

I own six of these stocks in my portfolio. The exception is BBY, a stock with a stellar 5-year TTR of 25.9%. Note also that BBY has the second-highest C# (23) and the second-highest 5-year DGR (19.9%). I also like BBY’s forward yield, a respectable 2.76%.

I recently updated my system for determining target weights for DivGro positions. The system is dynamic and flexible, adjusts to prevailing market conditions, and allows me to calibrate factors when my goals change.

According to my system, I need to add/subtract the following number of shares to reach my target weight:

  • TXN: add 20 shares (target: 95 shares) – approx. $3,718
  • LMT: add 8 shares (target: 48 shares) – approx. $2,927
  • AMGN: subtract 22 shares (target: 68 shares) – approx. ($5,004)
  • TROW: subtract 11 shares (target: 89 shares) – approx. ($2,168)
  • SNA: add 18 shares (target: 78 shares) – approx. $3,869
  • ALL: add 33 shares (target: 151 shares) – approx. $3,887

Because of tax implications, I’m not planning to sell AMGN and TROW shares. Instead, I’ll plan on adding shares to the other positions when funds become available.

I would recommend looking at all of these stocks to see if any pique your interest. Based on your investment style, consider the following stocks first:

  • For income investors, AMGN and LMT
  • For value investors: ALL, AMGN, and LMT
  • For dividend growth-oriented investors: ALL, AMGN, BBY, and TXN
  • For very safe dividends: SNA, TROW, and TXN

As always, I advise readers to do their due diligence before investing.

Thanks for reading, and Happy New Year!

Please follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

Also read:

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7 Dividend Growth Stocks For December 2021

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Focusing On Income, Too Many Stocks & Wrong Valuation: More Mistakes You Could Be Making

18 Dividend Stocks To Consider For The Next Decade

Hybrid Funds To Complement High Yield Portfolios

5 Discounted Dividend Contenders